How the White House Tried to Spin Today’s CBO Report

This morning, the Congressional Budget Office issued its annual “Budget and Economic Outlook,” which tries to forecast budget and economic trends for the next decade. As always, the document contains a lot of interesting material, but so far, commentary has centered on the CBO’s revisions to its estimates of the effects of the Affordable Care Act. Among other things, the CBO now projects that the ACA will cause a reduction in hours worked of 1.5% to 2% annually between 2017 and 2024, equivalent to approximately two million full-time jobs. This reduction in employment is based on the fact that both Obamacare subsidies and higher taxes will reduce incentives to work:

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive. Because the largest declines in labor supply will probably occur among lower-wage workers, the reduction in aggregate compensation (wages, salaries, and fringe benefits) and the impact on the overall economy will be proportionally smaller than the reduction in hours worked.

The CBO also projects that “as a result of the ACA, between 6 million and 7 million fewer people will have employment-based insurance coverage each year from 2016 through 2024 than would be the case in the absence of the ACA.”

Claims that the Affordable Care Act hurts jobs are simply belied by the facts in the CBO report. CBO’s findings are not driven by an assumption that ACA will lead employers to eliminate jobs or reduce hours, in fact, the report itself says that there is “no compelling evidence that part-time employment has increased as a result of the ACA.”

Note that Carney doesn’t mention the CBO’s bottom line, that working hours equivalent to two million jobs will be foregone. It is true that the report says there is “no compelling evidence that part-time employment has increased as a result of the ACA,” but that is hardly surprising, since the employer mandate won’t go into effect until 2015. After the language quoted by Carney, the report goes on to say, “In any event, because the employer penalty will not take effect until 2015, the current lack of direct evidence may not be very informative about the ultimate effects of the ACA.”

It is true, too, that the CBO attributes the 1.5% to 2% annual shortfall in hours worked almost entirely to disincentives to work rather than to lack of demand by employers. But this is partly because the CBO thinks employers will be able to pass Obamacare penalties on to their employees. The CBO’s discussion of this point is interesting and warrants reproducing in full:

Effects of the Employer Penalty on Labor Supply

Under the ACA, employers with 50 or more full-time-equivalent employees will face a penalty if they do not offer insurance (or if the insurance they offer does not meet certain criteria) and if at least one of their full-time workers receives a subsidy through an exchange. Originally scheduled to take effect in 2014, that penalty is now scheduled to be enforced beginning in 2015. In CBO’s judgment, the costs of the penalty eventually will be borne primarily by workers in the form of reductions in wages or other compensation—just as the costs of a payroll tax levied on employers will generally be passed along to employees. Because the supply of labor is responsive to changes in compensation, the employer penalty will ultimately induce some workers to supply less labor.

In the next few years, however, when wages probably will not adjust fully, those penalties will tend to reduce the demand for labor more than the supply. In the longer run, some businesses also may decide to reduce their hiring or shift their demand toward part-time hiring— either to stay below the threshold of 50 full-time-equivalent workers or to limit the number of full-time workers that generate penalty payments. But such shifts might not reduce the overall use of labor, as discussed below.

Effects of the Employer Penalty on the Demand for Labor

Beginning in 2015, employers of 50 or more full-time- equivalent workers that do not offer health insurance (or that offer health insurance that does not meet certain criteria) will generally pay a penalty. That penalty will initially reduce employers’ demand for labor and thereby tend to lower employment. Over time, CBO expects, the penalty will be borne primarily by workers in the form of reduced wages or other compensation, at which point the penalty will have little effect on labor demand but will reduce labor supply and will lower employment slightly through that channel.

Businesses face two constraints, however, in seeking to shift the costs of the penalty to workers. First, there is considerable evidence that employers refrain from cutting their employees’ wages, even when unemployment is high (a phenomenon sometimes referred to as sticky wages). For that reason, some employers might leave wages unchanged and instead employ a smaller workforce. That effect will probably dissipate entirely over several years for most workers because companies that face the penalty can restrain wage growth until workers have absorbed the cost of the penalty—thus gradually eliminating the negative effect on labor demand that comes from sticky wages.

A second and more durable constraint is that businesses generally cannot reduce workers’ wages below the statutory minimum wage. As a result, some employers will respond to the penalty by hiring fewer people at or just above the minimum wage—an effect that would be simi- lar to the impact of raising the minimum wage for those companies’ employees. …

Businesses also may respond to the employer penalty by seeking to reduce or limit their full-time staffing and to hire more part-time employees. Those responses might occur because the employer penalty will apply only to businesses with 50 or more full-time-equivalent employees, and employers will be charged only for each full-time employee (not counting the first 30 employees).

So Obamacare will depress wages and reduce employment opportunities, especially for those at or near the minimum wage. Carney didn’t mention any of this. He continued:

What the CBO report does find is one key immediate effect of the Affordable Care Act is to “induce some employers to hire more workers or to increase the hours of current employees” during the 2014-16 period.

This is really deceptive. What the CBO actually said is that employment will be reduced throughout the period from 2014 through 2024, but the reduction in employment will be smaller during the first few years. This is the full explanation by the CBO, with the language quoted by Carney at the very end:

Why Will Those Reductions Be Smaller in the Short Term?

CBO estimates that the ACA will cause smaller declines in employment over the 2014–2016 period than in later years, for three reasons. First, fewer people will receive subsidies through health insurance exchanges in that period, so fewer people will face the implicit tax that results when higher earnings reduce those subsidies. Second, CBO expects the unemployment rate to remain higher than normal over the next few years, so more people will be applying for each available job—meaning that if some people seek to work less, other applicants will be readily available to fill those positions and the overall effect on employment will be muted. Third, the ACA’s subsidies for health insurance will both stimulate demand for health care services and allow low-income households to redirect some of the funds that they would have spent on that care toward the purchase of other goods and services—thereby increasing overall demand. That increase in overall demand while the economy remains somewhat weak will induce some employers to hire more workers or to increase the hours of current employees during that period.

Emphasis added. Now Carney waxes poetic:

Over the longer run, CBO finds that because of this law, individuals will be empowered to make choices about their own lives and livelihoods, like retiring on time rather than working into their elderly years or choosing to spend more time with their families.

This is how Carney spins the loss of two million jobs.

At the beginning of this year, we noted that as part of this new day in health care, Americans would no longer be trapped in a job just to provide coverage for their families, and would have the opportunity to pursue their dreams.

I.e., the opportunity to pursue the dream of working for lower wages, which will cause some to choose not to work at all.

This CBO report bears that out, and the Republican plan to repeal the ACA would strip those hard-working Americans of that opportunity.

Strip hard-working Americans of the opportunity to stop working? The horror!

Carney concludes with this old chestnut:

Finally, as it has since the enactment of the ACA, CBO continues to confirm that the ACA is projected to reduce the deficit by more than $1 trillion over the next two decades.

This simply isn’t true. Today’s report only goes to 2024 and includes no “two decade” projections for the ACA. What the report does say is that the insurance-related provisions of the ACA–the portions of the act that are commonly referred to as Obamacare–will increase deficits by nearly $1.5 trillion by 2024:

In the current, interim projections, CBO and JCT [the Joint Committee on Taxation] estimate that the ACA’s coverage provisions will result in a net cost to the federal government of $41 billion in 2014 and $1,487 billion over the 2015–2024 period.

The ACA purports to run a surplus because of unrelated tax and spending provisions. Today’s report includes a footnote that cites this CBO letter, which explains that the ACA cuts Medicare spending by an estimated $711 billion, and increases taxes on investment income and medical devices by $569 billion. (These figures are for the period 2013-2022.) It is those spending cuts and tax increases that allow Carney to claim that the ACA “is projected to reduce the deficit.” He gets to the $1 trillion number by running the projection out for 20 years, which the CBO doesn’t do. So the real bottom line is that repealing Obamacare would allow us to restore more than $700 billion in Medicare cuts (or else use that money for something else, or return it to the taxpayers) and get rid of the tax on medical devices.

In short, the administration’s dishonest and inadequate effort to spin the CBO’s report shows how damaging that report truly is with respect to Obamacare.